Developing Pakistan And Curse Of Commitment Charges

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To avoid billions of dollars in commitment charges, there must be a focus on policy continuity and streamlined project implementation

2024-08-09T18:28:57+05:00 Kashif Hassan

Amid the fervor surrounding the commencement of the second phase of the multibillion-dollar China-Pakistan Economic Corridor (CPEC), there is an undeniable need for policy continuity and an efficient project implementation process to avoid unnecessary commitment charges, especially for foreign-funded projects.

Political governments, often swayed by constituency-oriented politics, announce new projects at every opportunity. Following directives from their political superiors, bureaucrats hastily prepare projects for financing from various Multilateral Development Banks (MDBs). The concept papers and PC-I documents are prepared and approved overnight without much deliberation or assessment. Consequently, these projects enter the MDB financing pipeline prematurely, leading to 'unforeseen' delays, running up billions of dollars in commitment charges. These charges accrue from the date of booking the loan rather than when the project starts or when the first disbursement is made.

There is a long list of projects that have either stalled or required extensions before even starting for several reasons. First, land acquisition - a local component of any major project - remains the primary obstacle to project implementation. Even important projects, such as the Balakot Hydropower project, the Tarbela Extension-V project, and the Lahore Water Management project, have been bogged down in land acquisition, settlement and the rehabilitation of affectees. Delays often lead to an escalation in the project's price as well. Additionally, it is ironic that projects initiated by one government are often ignored or sidelined with political changes in governance despite their significance for economic stability and infrastructure development. Secondly, over-centralisation of projects at the federal and provincial levels slows down the disbursement and overall progress of projects. This centralisation makes it difficult to secure approvals from various administrative organs of the state, which is a herculean task that consumes unnecessary time, effort, and resources.

Similarly, the absence of necessary regulations and by-laws delays crucial projects vital for good governance and public services. For example, Karachi's wastewater sewage projects have overshot the timeframe identified in their PC-I and remain incomplete due to various approval requirements put forth by the provincial government. Since the Sindh government failed to amend its Local Government Act (2023), donors have stopped financial disbursements. Consequently, no tangible work was carried out on the project during this period; however, commitment charges were paid as required.

Small projects are easier to execute as they require reduced involvement from the higher-ups. Therefore, such projects must be prioritised as they are small yet impactful. This will also help improve human capital in the country

Moreover, policymakers often ignore environmental aspects and the overall utility of projects in their haste. One of the reasons for the undue haste in greenlighting foreign-funded projects is to boost the dollar inflow, buoy the country's foreign reserves, and meet government commitments to the International Monetary Fund (IMF). However, non-compliance with the health and safety standards enables donors to halt disbursements, causing indefinite project shutdowns. The Karachi Bus Rapid Transit (BRT) project is a case in point, where work was halted after the Asian Development Bank (ADB) raised health and safety issues, thereby escalating its price and inconveniencing millions of daily commuters.

To avoid paying billions of dollars in commitment charges, there must be a focus on ensuring policy continuity and streamlining project implementation. Decentralising projects, concentrating on small, result-oriented projects with limited scope, directly impacting people's livelihoods, and timely completion of all necessary groundwork, including land acquisition and legal matters, are crucial. There is also a need to focus on Pakistan's commitments to the Sustainable Development Goals (SDGs), especially poverty alleviation, 100% free primary education, and decent employment. Small projects are easier to execute as they require reduced involvement from the higher-ups. Therefore, such projects must be prioritised as they are small yet impactful. This will also help improve human capital in the country.

It is imperative to learn from past mistakes and reduce the burden of commitment charges on the already strained national exchequer. The future of our economic stability and infrastructure development depends on it. Ensuring a thorough evaluation process, proper groundwork, and adherence to international standards can pave the way for successful project completion. Our commitment to these principles will foster sustainable development, enhance public trust, and lead to a more prosperous and resilient nation.

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